U.S. v. County of Muskegon

Citation298 F.3d 569
Decision Date26 July 2002
Docket NumberNo. 00-1170.,00-1170.
PartiesUNITED STATES of America and State of Michigan, Plaintiffs-Appellees, City of Whitehall, et al., Intervenor and New Party Plaintiffs-Appellees, v. COUNTY OF MUSKEGON, Defendant-Appellee, S.D. Warren Company, Intervenor Defendant-Appellant, Burdick & Jackson Laboratories, et al., Intervenor Defendants.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

John A. Bryson (briefed), Joan M. Pepin (argued and briefed), United States Department of Justice, Land & Natural Resources Div., Washington, DC, Alan F. Hoffman (argued and briefed), Office of the Attorney General, Lansing, Natural Resources Div., Lansing, MI, Michael B. Ortega (briefed), Reed, Stover & O'Connor, Kalamazoo, MI, Steven F. Stapleton (argued and briefed), Plunkett & Cooney, Grand Rapids, MI, G. Thomas Johnson, Parmenter & O'Toole, Muskegon, MI, Patricia Mason (briefed), Reed, Stover & O'Connor, Kalamazoo, MI, James M. Rose, Rose & Ecklund, Montague, MI, David C. Williams, Williams, Hughes, Corwin & Sininger, Muskegon, MI, for Plaintiffs-Appellees.

Stephen C. Corwin (argued and briefed), Williams, Hughes, Corwin & Sininger, Muskegon, MI, Paul T. Sorenson (argued and briefed), Dennis J. Donohue (briefed), Warner, Norcross & Judd, Grand Rapids, MI, for Defendants-Appellants.

Before DAVID A. NELSON and BATCHELDER, Circuit Judges; FEIKENS, District Judge.*

OPINION

DAVID A. NELSON, Circuit Judge.

Muskegon County, Michigan, operates a sewage treatment system under permits issued pursuant to § 402 of the Federal Water Pollution Control Act, 33 U.S.C. § 1342. The case at bar originated as a federal enforcement proceeding in which the United States sought to rectify alleged violations of the permits, the Act, and certain administrative compliance orders issued by the United States Environmental Protection Agency.

The appellant, S.D. Warren Company, is an industrial concern that discharges wastewater into the system. The company helped finance the construction and subsequent upgrading of the system, and for many years S.D. Warren and other industrial users were beneficiaries of service agreements — now purportedly terminated — declaring that "the intent and purpose of the System [is] to provide the maximum possible service to each Contractee...."

Prior to the commencement of the present enforcement action, S.D. Warren and other private users of the system sued the county in a Michigan circuit court on a claim that the "maximum possible service" provision would be violated by enforcement of a newly-adopted county regulatory ordinance that allegedly had the effect of mothballing a significant portion of the system's capacity. The claim was decided in favor of the companies, and the county was enjoined from enforcing the ordinance.

The present federal action was commenced a year later, while an appeal of the state court judgment was pending. S.D. Warren and other industrial concerns intervened herein as defendants. The State of Michigan, joined initially as a defendant, was realigned as a plaintiff. Municipalities within the county — including the City of Muskegon, home of an S.D. Warren manufacturing plant — have also become plaintiffs in the federal case.

During the course of the proceedings below, the county gave notice that the service agreements would be terminated. After the notice was given, but before the stated effective date, the district court entered two consent decrees. The first disposed of the municipalities' claims against the county on a basis that incorporated another regulatory ordinance, enacted four years after the one that had been enjoined, with terms substantially identical to those of its predecessor. The second consent decree, which disposed of the federal government's claims against the county and state, also incorporated the most recent ordinance.

S.D. Warren has appealed the consent decrees and a decision in which the district court rejected certain of the companies' defenses and denied a defense motion for partial summary judgment.1 Contending that the district court abused its discretion in finding the consent decrees fair and reasonable, the company submits that the arrangements sanctioned by the district court unconstitutionally impair and breach the service agreement with the county. Given the history of the proceedings in state court, the company contends that the new arrangements contravene principles of comity as well. Narrowing the focus of the latter contention at one point, the company's brief also suggests that, in light of the state court decision, we could dispose of this case on the theory that the federal courts lack jurisdiction.

We conclude that federal jurisdiction is not lacking here. We further conclude that the district court did not err in holding, as it did, that the service agreement on which the company relies was lawfully terminated. The termination having been proper, and there having been no proof that any damages accrued as a result of the imposition of the new regulatory scheme prior to the effective date of the termination notice, the district court did not err in finding that there had been neither a redressable breach of contract rights nor an unconstitutional impairment of contractual obligations. Accordingly, and because we are not persuaded that the court committed reversible error in its resolution of any other substantive issue, the challenged orders will be affirmed.

I

In the late 1960s, according to undisputed representations made in a brief that the companies filed below,

"the Municipalities and certain large industries within the County ... decided to construct a county-wide sewer system. The purpose of the system was to accommodate both residential sewage needs and the needs of the established industrial base within the County. The parties decided to finance construction of the system through mixed funding. Specifically, $12.7 million of the $28.7 million initial construction cost was financed through federal and state grants. The remaining $16 million was to be raised by issuance of bonds facilitated by formation of a County Department of Public Works Board under the County Board and Department of Public Works Act ("DPW Act") (MCL § 123.731 et seq.). The DPW Act authorized duly formed county DPW boards to issue bonds for the acquisition or construction of sewer systems by counties and then secure their bond obligations by contracting with municipalities within the county to back the county bonds with their full faith and credit. (MCL §§ 123.741(2); 123.742.) The DPW Act did not, however, authorize counties to contract directly with private parties to guarantee bond payments. Id. The parties understood, however, that the financial participation of these large industries in servicing the bond debt was and is critical to keeping residential sewer rates low and, therefore, making the project feasible. Accordingly, the parties forged agreements that were consistent with the DPW Act, but that incorporated these industries into the funding structure."

Among the agreements "forged" by the parties prior to construction of the sewer system was a contract dated May 21, 1971, between the City of Muskegon and Scott Paper Company. (Under the name "S.D. Warren Company," which denoted what was then an unincorporated division of Scott, that company owned and operated a pulp and paper manufacturing plant in the City of Muskegon.) The 1971 contract "authorized" the city to enter into an Access Rights Agreement with the county regarding the planned sewage disposal system.

In explaining this "authorization," the 1971 contract stated that the Access Rights Agreement "delineat[ed] in detail the procedures for the issuance of bonds by the County to finance the initial construction of the System ... and the apportionment of the obligations to be assumed [by the municipalities] to the County for the payment of the debt service requirements (including interest and principal) for said bonds...." The 1971 contract went on to obligate Scott (S.D.Warren) to pay the city a share of the latter's debt service commitment, the company's obligation being secured through the creation of a special assessment district the boundaries of which were identical to those of the 110 acre tract on which the pulp and paper plant was located. The contract further provided that "[t]he amount of the special assessments to be levied annually in said Special Assessment District shall be Scott's share of the cost of the initial construction of the System as determined by the formulae set forth in the `Access Rights Agreement.'"

The Access Rights Agreement was entered into between Muskegon County and a number of municipalities, including the City of Muskegon, as of December 4, 1970. The agreement's formulae for determining the allocation of the debt service burden were based in part on the number of acres each municipality had within the sewage system service area, with the acreages of certain industries (including S.D. Warren) broken out separately. Another element in the formulae consisted of a figure equal to the higher of the actual daily volume of waste materials delivered to the system and a guaranteed minimum volume. The City of Muskegon (8,072 acres) had a guaranteed minimum volume of 16.5 million gallons per day. S.D. Warren (110 acres) had an initial guaranteed minimum volume of 16 million gallons per day, with a reduction to 12 million gallons per day after 1982.

In addition to contracting with the city to underwrite part of the initial cost of constructing the system, S.D. Warren contracted to pay the county a share of the operating costs in exchange for the county's providing sewage treatment service. Although not made part of the record, the company's contract with the county took substantially the same form as that of a service agreement entered into as of October 3, 1973, between the county and ...

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